1. What is the IMF's mission and how has that changed
over time?
The International Monetary Fund (IMF) was created in 1944 to maintain
the standard of fixed exchange rates that was established at the end of
World War II. Since the abandonment of the gold standard in 1971, the
IMF has adopted a new core mission, providing loans to economically troubled
countries.

Countries with balance of payment difficulties -- meaning their earnings
from imports and other sources are insufficient to pay off their foreign
debt -- turn to the IMF for two reasons. First, the IMF provides loans
to cover immediate obligations to foreign creditors. Second, private lenders
and other public lenders, such as the World Bank, generally will not lend
to troubled economies unless they have a loan agreement with the IMF.

Thus the IMF plays a "gatekeeper" role -- if you are a poor, indebted
country, you can't get access to foreign credit unless you have a deal
with the IMF. IMF agreements typically require countries to adopt "structural
adjustment" policies as the condition for a loan.

2. What is the current relationship between the IMF and World Bank?
How has that changed over time? Do their functions overlap?
The World Bank was also formed in 1944 to help with European post-war
reconstruction. It later shifted its focus to assisting development efforts
in the Third World. It has traditionally funded major infrastructure projects
-- roads, hydroelectric dams, coal plants, etc. These have been highly
controversial for their effect on the environment, indigenous people,
rural communities and women.

Starting in the 1980s, and while continuing to do project lending, the
Bank began shifting its loans toward structural adjustment and sectoral
adjustment loans. About two thirds of the Bank's lending now goes for
structural adjustment and sectoral adjustment. The World Bank's structural
adjustment programs are not appreciably different than those of the IMF.

The IMF and World Bank jointly administer a program, now called the Heavily
Indebted Poor Country/Poverty Reduction and Growth Fund that provides
very modest debt relief to the world's poorest countries on the condition
that they undergo years of structural adjustment.

The World Bank respects the IMF's unofficial gatekeeper role, and generally
will not make loans to countries that have not received an IMF seal of
approval.

3. What is the IMF and World Bank's relationship to the World Trade
Organization (WTO)?
The IMF, World Bank and the WTO all share a commitment to "free
trade" and binding developing countries into the global economy.

The WTO, which implements agreements governing world trade and administers
a binding mechanism to resolve trade disputes between nations, generally
operates independently of the IMF and World Bank.

In November 1999, however, the IMF, World Bank and WTO announced a new
"coherence agreement" in which they pledged to coordinate future activity.
It is unclear what this will mean in practice, but some fear the IMF and
World Bank may incorporate the very particularized elements of WTO agreements
into their lending conditions.

4. How does the IMF set its policies?
The IMF is governed primarily by an executive board that consists of representatives
of the IMF member countries, with a heavier weighting to countries that
provide more money to the Fund. The executive board sets broad policy
and approves loans. The agency's bureaucracy handles the massive, day-to-day
operations and exerts a strong, de facto influence over policy.

Voting at the IMF is weighted, with bigger contributing countries having
proportionally more say. The United States, the largest shareholder at
the IMF, maintains veto power over major decisions at the Fund. In practice,
the U.S. Treasury Depratment exercises overwhelming control at the IMF;
the New York Times has referred to the Fund as a "proxy for the United
States."

5. How open is the IMF to outside scrutiny and participation?
Although "transparency" (openness) is a favorite buzzword in development
circles, the IMF is extremely secretive in its operations. In recent years,
as criticism of the IMF's secrecy has grown in developing countries, the
IMF has made "Policy Framework Papers" -- the documents establishing the
parameters of structural adjustment programs in specific countries --
and some other important materials public. These are all papers that a
few years ago the IMF said it could not make public out of respect for
the sovereignty of the countries they affected. Meanwhile, other critical
documents remain secret.

Although it assumes a dominating role in economies undergoing structural
adjustment -- with IMF officials often posted in national finance departments
-- precise IMF demands are typically concealed from the affected populations.

As a general matter, the IMF does not seek public input into the policies
it imposes on borrowing countries through structural adjustment.
6. Given that the U.S. taxpayer kicks in a great deal for the IMF, what
kind of oversight of the IMF is provided by Congress or other agencies?
The IMF is generally viewed as following a line set by the U.S. Treasury
Department.

Congressional efforts to influence policy at the Fund have generally
failed. Congress has directed the U.S. executive director to the IMF to
use "voice and vote" to push for certain reforms, but this has had virtually
no effect on IMF policy. Almost all decisions at the IMF are reached by
consensus, and recorded votes rarely taken; the U.S. Executive Director
to the IMF, Karen Lissakers, told a Congressional committee in 1998 that
the Fund's executive board had taken votes on approximately a dozen out
of 2,000 decisions taken during her tenure.

The only time Congress has affected IMF policy is when it refused to
provide requested funds.

7. What is structural adjustment?
Structural adjustment is a policy package in line with what is often called
"neoliberalism," a far-reaching version of the "free trade" agenda. In
many ways, it is a harsh version of Newt Gingrich's Contract with America.

The basic idea of these policies is to shrink the size and role of government,
rely on market forces to distribute resources and services and integrate
poor countries into the global economy.

8. How do multinational corporations benefit from IMF policies?
Structural adjustment policies open up developing countries to foreign
investors on terms most favorable to multinational corporations. They
require countries to remove barriers to foreign investment, and push countries
to orient their economies to producing exports -- typically produced by
or sold to multinationals. State-owned enterprises privatized under structural
adjustment are frequently sold to multinationals -- often at bargain-basement
prices.

IMF-orchestrated bailouts of countries -- assistance to countries whose
exchanges rates are plummeting -- provide money primarily so that developing
countries can pay off their foreign creditors (including private banks).
Many critics view these bailouts effectively as bailouts of the creditors
who don't absorb the cost of risky loans gone bad.

This particular kind of corporate welfare can have especially pernicious
effects, since it may encourage excessively risky lending by bankers and
others. If they know they have free, de facto insurance from the IMF,
they can make very risky loans at high interest rates without fear of
paying for failures.

9. What is the IMF's approach to helping countries that are deeply
in debt?
The IMF program for helping poor countries that are deeply in debt was,
until recently, called the Enhanced Structural Adjustment Facility (ESAF).
Last year, under fire for a program poorly run, the Fund changed the name
to Poverty Reduction and Growth Facility (PRGF). This program is operated
in conjunction with the World Bank's Heavily Indebted Poor Country (HIPC)
Initiative.

The purpose of PRGF/HIPC is to provide some debt relief -- that is, to
cancel part of the debts -- for poor countries that have no hope of paying
back their foreign debt and for whom debt payments are draining their
economy.

However, the debt relief afforded by PRGF/HIPC is very modest. Under
the plan, for example, many countries find that while the absolute amount
of their debt may decline, the amounts they actually pay are only minimally
affected. That is because many poor countries cannot meet their debt payments,
and, often with the agreement of their creditors, only pay a portion of
what they formally owe.

Compounding the problem, the price of receiving debt relief under the
PRGF/HIPC program is implementing a carefully supervised structural adjustment
program for three years (previously six years).

10. What would the alternative be?
An alternative would call for immediate debt cancellation of the debts
of the poorest countries and, at least, far-reaching debt cancellation
for other developing countries. For less poor countries, debt cancellation
could focus on "odious" debt -- debt incurred by dictators, military regimes
or for boondoggle projects pushed by foreign interests.

This cancellation would come without any structural adjustment conditions.
Many developing country economic justice advocates urge instead conditions
related to the establishment of democracy, or a commitment to devote resources
to meeting the basic needs of the poorest segments of society.

In the case of the poorest nations, debts could be cancelled by drawing
on the existing resources of the IMF and World Bank -- that is, without
rich countries providing these institutions with any new funding.

Beyond approaches to debt cancellation, many in the developing world
are also calling for an alternative approach to economic development.
One of the demands arising from grassroots movements is respect for a
diversity of national approaches, so there would be no "blueprint" for
development to parallel the IMF's cookie-cutter structural adjustment
policies. But there is growing agreement about the importance of a number
of principles: national food security, land reform, devoting attention
to production for local needs, an emphasis on egalitarian wealth distribution,
emphasizing smaller enterprises, empowering workers and respecting worker
rights, imposing regulations on foreign capital to limit exposure to volatile
international capital markets, involving "civil society" in development
planning, and preserving a substantial role for government in planning,
regulating and carrying out economic activity.

11. What are the economic and social impacts of structural adjustment?
Structural adjustment has been successful at its intended efforts to diminish
the scope of government and to integrate developing countries into the
global economy.

It has failed by many other measures. By and large, countries undergoing
structural adjustment have not experienced economic growth, even in the
medium term.

Those developing countries that have experienced the greatest economic
successes in recent decades have violated many of the central precepts
of structural adjustment. They have protected certain parts of their economy,
and they have maintained an active governmental role in economic planning.

In the two regions with the most structural adjustment experience, per
capital income has stagnated (Latin America) or collapsed (Africa, where
per capita income dropped more than 20 percent between 1980 and 1997).

The emphasis on exports tends to be socially disruptive, especially in
rural areas. Poor subsistence farmers frequently find their economic activity
described as nonproductive, and experience land pressures from expanding
agribusinesses, timber companies and mines. Pushed off their land, they
frequently join the ranks of the urban unemployed, or move onto previously
unsettled, and frequently environmentally fragile, lands.

Structural adjustment has generally contributed to rising income and
wealth inequality in the developing world, a fact tacitly acknowledged
by both recently retired IMF Managing Director Michel Camdessus and World
Bank President James Wolfensohn.

12. How did the Asian financial crisis of 1997 start and what was
the IMF's response?
The Asian meltdown was caused in large part by South Korea, Thailand,
the Philippines, Malaysia and Indonesia's heavy reliance on short-term
foreign loans. When it became apparent that private enterprises in those
nations would not be able to meet their payment obligations, international
currency markets panicked. Currency traders sought to convert their Asian
money into dollars, and the Asian currencies plummeted. That made it harder
for the Asian countries to pay their loans, and it made imports suddenly
very expensive.

There were other underlying causes for the financial crisis, including
overinvestment in real estate and other speculative and unnecessary ventures,
but almost everyone agrees the currency crash and financial disaster were
vastly disproportionate to the weaknesses in the Asian economies.

The IMF treated the Asian financial crisis like other situations where
countries could not meet their balance of payment obligations. The Fund
made loan arrangements to enable countries to meet foreign debt payments
(largely to private banks in these cases) on the condition that the recipient
countries adopt structural adjustment policies.

But the Asian crisis differed from the normal situation of countries
with difficulties paying off foreign loans. For example, the Asian governments
were generally not running budget deficits. Yet the Fund instructed them
to cut spending -- a recessionary policy that deepened the economic slowdown.

The Fund failed to manage an orderly roll over of short-term loans to
long-term loans, which was most needed; and it forced governments, including
in South Korea and Indonesia to guarantee private debts owed to foreign
creditors.

In retrospect, even the IMF would admit that it made things worse in
Asia.

Malaysia stood out as a country that refused IMF assistance and advice.
Instead of further opening its economy, Malaysia imposed capital controls,
in an effort to eliminate speculative trading in its currency. While the
IMF mocked this approach when adopted, the Fund later admitted that it
succeeded. Malaysia generally suffered less severe economic problems than
the other countries embroiled in the Asian financial crisis.

13. Has the 1997-1998 global financial crisis led to a shift in
the debate surrounding structural adjustment policies in the developing
world?
The IMF's structural adjustment prescriptions for countries suffering
through the Asian financial crisis were roundly denounced, including by
many conservative and mainstream economists and opinion makers. The widespread
criticism of the Fund undermined its political credibility.

The IMF response has been to make some minor concessions in making its
documents more publicly available, limiting its demands that countries
liberalize their capital markets (including by allowing unlimited trade
in their currency, and permitting foreign investors to invest in domestic
stocks and bonds without restriction), and increasing its rhetorical commitment
to paying attention to poverty in its structural adjustment programs.

14. What were the consequences of the Asian financial crisis in
countries like Thailand and Indonesia? Did IMF policies help those countries?
The financial crisis led to massive human suffering.

In South Korea, a country whose income approaches European levels, unemployment
skyrocketed from approximately 3 percent to 10 percent. "IMF suicides"
became common among workers who lost their jobs and dignity.

In Indonesia, the worst hit country, poverty rates rose from an official
level of 11 percent before the crisis to 40 to 60 percent in varying estimates.
GDP declined by 15 percent in one year.

In September 1998, UNICEF reported that more than half the children under
two years old in Java, Indonesia's most populous island, were suffering
from malnutrition.

At one point, the food shortage became so severe that then-President
B.J. Habibie implored citizens to fast twice a week. Many had no choice.

IMF policies exacerbated the economic meltdown in countries hit by the
Asian financial crisis. Mandated reductions in government spending worsened
the Asian nation's recessions and depressions. And the forced elimination
of price controls and subsidies for the poor imposed enormous costs of
the lowest income stratas. In Indonesia, food and gasoline prices rose
25 to 75 percent overnight or in the course of a few days.

15. What has been the IMF's role in Russia?
Russia in the 1990s has witnessed a peacetime economic contraction of
unprecedented scale. Many believe much of the blame for the social and
economic catastrophe rests with the IMF, which has had a central role
in designing and supervising Russia's economic policy since 1992.

The number of Russians in poverty has risen from 2 million to 60 million
since the IMF came to post-Communist Russia. Male life expectancy has
dropped sharply from 65 years to 57. Economic output is down by at least
40 percent.

"In retrospect, it's hard to see what could have been done wrong that
wasn't," Mark Weisbrot of the Center for Economic and Policy Research
told a Congressional committee in late 1998. "First there was an immediate
de-control of prices. Given the monopoly structure of the economy, as
well as the large amount of cash savings accumulated by Russian households,
inflation soared 520 percent in the first three months. Millions of people
saw their savings and pensions reduced to crumbs."

Then the IMF and Russian policymakers compounded their mistakes, Weisbrot
explained. "In order to push inflation down, the authorities slammed on
the monetary and fiscal brakes, bringing about a depression. Privatization
was carried out in a way that enriched a small class of people, while
the average person's income fell by about half within four years."

Meanwhile, Russia kept its economy functioning with an influx of foreign
funds, lent at astronomically high interest rates because of the strong
possibility of default. In 1998, with the Asian crisis still unfolding
and with Russian default seemingly near, the IMF agreed to a $23 billion
loan package to Russia, seeking to maintain the ruble's overvalued exchange
rate. An initial $4.8 billion portion of the loan left the country immediately
-- some used to pay off foreign lenders, much of it stolen by Russian
politicians.

Soon after that fiasco, the ruble collapsed -- with none of the horrible
consequences predicted.

For the IMF, the prospect of Russia deciding to continue not to repay
loans was extremely worrisome. To avert this problem, the Fund continued
its loan program, but its loans to Russia don't actually go to Russia;
all IMF money disbursed to Russia is held at the IMF -- and used to pay
off prior IMF loans to Russia.

Does the IMF think it made fundamental mistakes in Russia? No. From the
IMF's perspective, the problem has been not enough IMF-style "reform."
Here's how former IMF Managing Director Michel Camdessus put it in September
1999: "[Russia's economic] shortcomings represent not so much the failure
of reform as the effects of 70 years of central planning and the incomplete
implementation of reform policies -- itself a result of a lack of domestic
political consensus on reform."

16. How do IMF programs affect workers?
As outgoing World Bank economist Joseph Stiglitz says, the IMF views labor
as just another commodity. One of the IMF's emphases has been on promoting
"labor flexibility" -- meaning making it easier for workers to be fired.
The Fund has supported regulatory changes throughout the developing world
to remove restrictions on government and private employers firing or laying
off workers.

The IMF has actively promoted government downsizing, even though in many
countries the government is the major employer and there are few prospects
for alternative employment.

The IMF has also viewed many worker benefits as too costly (if they are
provided by the government) or too inefficient (if required of private
employers). It has urged major scaling back of government pension programs
throughout the world. And it has even called for the roll back of minimum
wages in countries like Haiti.

Respect for workers' right to organize is not included in the IMF's structural
adjustment policy prescriptions.

17. To what extent do IMF and World Bank structural adjustment
lending practices incorporate environmental considerations? How do structural
adjustment policies impact the environment?
"The IMF claims to defer to the World Bank on environmental matters, but
promotes export-led development that has major environmental impacts without
asking the World Bank for any formal assessment of the environmental implications
of its approach," explains Friends of the Earth in a recent report, "IMF:
Selling the Environment Short."

"The World Bank has failed to provide environmental guidance to the IMF,
and is even delinquent in assessing the environmental impacts of its own
structural adjustment loans," Friends of the Earth concludes. "A recent
internal World Bank study found that fewer than 20 percent of World Bank
adjustment loans included any environmental assessment."

But the failure to consider environmental implications does not mean
there aren't any. Here is how Friends of the Earth summarizes the effects
of structural adjustment on the environment:

"The IMF's economic policies affect the environment in various ways.
One major goal of structural adjustment programs (SAPs) and stabilization
programs is to generate foreign exchange through a positive trade balance.
To meet the IMF's ambitious targets for currency reserves and trade balance,
countries must quickly generate foreign exchange, often turning to their
natural resource base. Countries often over-exploit their resources through
unsustainable forestry, mining and agricultural practices that generate
pollution and environmental destruction, and ultimately threaten future
exchange earnings."

"[E]xports of natural resources have increased at astonishing rates in
many countries under IMF adjustment programs, with no consideration of
the environmental sustainability of this approach. Furthermore, the IMF's
policies often promote price-sensitive raw resource exports, rather than
finished products. Finished products would capture more added value, employ
more people in different enterprises, help diversify the economy and disseminate
more know-how."

"Structural adjustment and stabilization also aim to generate positive
government budget balances. In the effort to rapidly trim budget deficits,
governments are forced to make choices, and inevitably, the environment
loses. Decreased spending weakens government ability to enforce environmental
laws and diminishes efforts to promote conservation. In addition, governments
are told to increase private investment and to reduce the role of the
state in favor of private sector development. Budget priorities are often
directed toward business promotion, creating a further strain on cash-strapped
environmental enforcement agencies. ... Governments may also relax environmental
regulation to meet SAP [structural adjustment program] objectives of increasing
foreign investment, as occurred in the case of the Philippines."

As one example of how IMF-mandated budget cuts can hurt the environment,
Friends of the Earth points to the Brazilian Amazon forest: "Because of
IMF budget restrictions, as of July 1999, funding for the enforcement
of environmental regulations and supervision programs was reduced by over
50 percent. ... The Brazilian Institute for the Environment and Renewable
Natural Resources, responsible for implementing Brazil's environmental
and conservation protection programs, had expenditures that totaled only
16.28 percent of its budget."

18. What is the Meltzer Commission and what did it say?
The Meltzer Commission, formally known as the International Financial
Advisory Commission to the U.S. Congress, was created by the 1998 U.S.
legislation that allocated an additional $18 billion to the IMF. The Commission
was charged with reviewing the operations of the IMF and World Bank, and
making recommendations for changes in the international financial institutions.

The Commission, which included both Republican and Democratic appointees,
unanimously agreed on two points: the debts of the 41 most indebted and
impoverished countries should be cancelled; and the IMF should get out
of the business of long-term development lending.

Commission members split over how severely the IMF's functions should
be limited (with most Democratic members aiming to preserve a broader
role for the IMF) and over proposed changes in the World Bank. Eight of
the eleven Commission members supported a proposal to change the World
Bank to the World Development Agency, to eliminate the Bank's lending
function and replace Bank loans with grants, and generally to shrink the
size of the Bank.

19. Given the international nature of markets, does structural
adjustment indirectly affect the U.S. economy even if the United States
is not directly forced to structure our economy in response to IMF
guidelines? How?
Politically, structural adjustment and trickle-down economics (broadly,
the set of policies often described as "neoliberal") in richer countries
like the United States reinforce one another. Just as structural adjustment
carries the U.S. system of privatized, fee-for-service health care to
the Third World, those seeking to privatize the U.S. social security
system point to Chile's social security system as a model.

More concretely, structural adjustment forces developing countries to
orient their economies to produce exports. The primary target for those
exports is the United States, and secondarily other rich countries. The
IMF and World Bank economic programs do not support regional trade.

The IMF model of unregulated global economic integration places countries
in competition with each other to produce goods with the lowest possible
wage bill. That puts downward pressure on wages in all countries, including
in richer countries like the United States (particularly in markets like
steel and textiles that are produced in both rich and poor countries).

20. What should Congress do to reform/abolish the IMF/World Bank?
What could the IMF do to promote sustainable development?
Were the IMF actually concerned about sustainable development, there are
various policy measures it could promote. Friends of the Earth has called
on the IMF to emphasize ecological taxes rather than value-added taxes,
among other measures.

Some organizations, including some members of the Jubilee 2000 coalition
in the United States, have called on the IMF to pay more attention to
poverty and the effect of its lending on poverty. They place hope in the
IMF's newly stated commitment to address poverty in its lending practices,
and hope that the renaming of the Economic Structural Adjustment Facility
-- now the Poverty Reduction and Growth Facility -- will signal more than
just a name change.

Others, however, believe the IMF is irredeemable. (This is the Multinational
Monitor editorial position.) They believe the emphasis should not be on
pushing the IMF to adopt better policies, but on finding ways to shrink
the IMF's influence and power, so it has less say over developing country
policies.

This group is loathe to support more funding for the IMF, even funding
that is supposed to be allocated for debt relief. Instead, they say, the
IMF should draw on its existing resources to enact immediate debt cancellation
for the poorest countries. And, if the Fund is to continue at all, they
call on IMF lending to be delinked from structural adjustment conditions.

There is growing support for the idea of limiting the IMF's reach. Even
U.S. Treasury Secretary Lawrence Summers has urged that the Fund be restructured
so that it cease engaging in long-term development lending -- the sort
of lending done to the poorest countries, invariably with structural adjustment
conditions attached. The Meltzer Commission echoed this position, as has
the head of the German central bank.